UMass subsidiaries buy big hunk of biotech park

Saturday

Feb 23, 2013 at 3:00 PMFeb 23, 2013 at 6:20 PM

By Nick Kotsopoulos TELEGRAM & GAZETTE STAFF

Three newly created nonprofit subsidiaries of the University of Massachusetts Medical School paid $40.2 million Friday to acquire land and buildings at the Massachusetts Biotechnology Research Park off Plantation Street.

The acquisition of the three properties, which caught many city officials by surprise, has sent shockwaves through City Hall because of the potential loss of substantial tax revenue to the city.

Some city officials say they have grave concerns about the transactions because of the tax-exempt status of the medical school and its nonprofit subsidiaries that now own the properties.

Under state law, they will not be required to pay property taxes on the properties that were acquired. As a result, city officials said the loss of tax revenue to the city could be at least $1.52 million and possibly as much as $1.84 million.

City Manager Michael V. O'Brien said today that he was informed of the details of the “unprecedented” acquisition of the properties in the Biotech Park prior to the deeds being recorded Friday.

He said it was his understanding that UMass was unable to publicly comment on acquisitions before because of confidentiality clauses in their purchase and sale agreements.

The manager said the city now must focus on getting more details from UMass about its future plans for the properties and whether taxes will continue to be paid on them.

He said he is “gravely concerned,” though, about the potential loss of tax revenue if these properties end up removed from the city's tax rolls.

“We must now work very quickly to catch up and understand their intentions and goals for this unprecedented action,” Mr. O'Brien said today. “These properties are key for our biotech sector and they are our top taxpayers.

“I am all ears and prepared to listen intently,” he added. “I can tell you without hesitation I am gravely concerned that these premier Class A properties may be taken off the tax rolls. I am hopeful that the UMass board of trustees, UMass president, the med school trustees and the chancellor will understand how important these private sector biotech jobs and commercial real estate tax revenues are to our community. We certainly understand how important the med school is to our community and future.”

The real estate transactions, estimated to be among the largest in Worcester's history, include the following properties:

The properties, which have a total assessed valuation of $49.8 million, are known in the Biotechnology Park as Biotech 3, 4 and 5 — UMass Medical School already owns Biotech 1 and 2. It pays water bills but no property taxes on the properties, according to the city assessor's website.

The properties were most recently owned by Delaware corporations established by Alexandria Real Estate Equities Inc., according to city officials and online Registry of Deeds records.

The UMass Medical School and UMass Memorial Health Care currently lease space in some of the three properties.

The properties were purchased Friday by three nonprofits created Tuesday by Worcester City Campus Corp., itself a nonprofit real estate holding corporation and subsidiary of UMass.

The president of the three nonprofits established Tuesday is Nancy Vasil, an associate vice chancellor for finance at the University of Massachusetts Medical School, according to the Secretary of State's corporations online data base.

Mark Shelton, a spokesman for the Medical School, said when the properties were put up for sale UMass was interested in them because they are contiguous to its other biotech properties and to its campus.

“We're pleased that we're able to make this long-term investment in enhancing biomedical research in the region,” Mr. Shelton said in a statement. “This is a great investment for UMass Medical School and the city and the region.

“(UMass Medical School) expects to continue to grow our life sciences research and development enterprise at a time when discoveries in the basic biomedical sciences are rapidly being translated into potential treatments and cures,” he added. “Securing the future of the biotech park as a venue for life sciences companies to continue to flourish and develop is important to UMass Medical School, as well as the city and the region.”

Mr. Shelton said UMass officials intend to discuss the transaction in more detail with the city. He said all property taxes on the buildings are paid through June 30. The $40 million “came from existing campus reserves and will be replenished by taxable bond financing,” he said.

Mayor Joseph M. Petty said today the transactions caught him and many of his colleagues on the City Council by complete surprise.

“You would think that a move of this magnitude would have warranted some kind of public or private discussions (with city officials) beforehand,” he said.

Mr. Shelton said UMass had agreed to negotiate confidentially with the seller. As a result, it could not discuss it with anyone until after the deal was completed, he said.

Mr. Petty said it would be especially troubling if the properties were taken off the tax rolls because the city, in conjunction with the Worcester Business Development Corp., created the biotech park back in 1985.

He said substantial taxpayer dollars -- millions in federal and state funds -- were used to create the park, with the goal of expanding Worcester's tax base and creating new jobs.

"Taxpayers spent millions of dollars to create this park so it could grow and generate new tax revenue for the city," Mr. Petty said. "If these buildings are taken off the tax rolls, it would end up defeating that purpose. Hopefully, UMass will do the right thing because this could have a negative impact on the city of Worcester."

Mr. Petty said he is also concerned that the medical school is moving out of leased space at the park to new research space on campus. That will drive up vacancy rates, triggering a drop in assessments and the taxes they generate.

The mayor said the city would feel the loss of tax revenue starting next fiscal year, which begins July 1. He said the city manager would have to plan a budget for fiscal 2014 that takes into account the potential loss of at least $1.5 million in tax revenue.

Councilor-at-Large Frederick C. Rushton, chairman of the City Council Economic Development Committee, said he is confident that things will be worked out between the city and UMass.

He pointed out that UMass is the largest employer in the region and he believes these moves will benefit the city in the long run.

"We all need to chill out," Mr. Rushton said today."UMass is not Darth Vader. They are the number one employer in our city and they are continuing to grow. I'm confident that Dr. (Michael) Collins (the medical school chancellor) and the city manager will sit down, talk about the issues at hand and be able to hash this out."

Mr. Rushton said it is his understanding that property taxes will still have to be paid on any portions of the properties used by life science industries. He said UMass would not be obligated to pay taxes on the portions of the buildings it uses.

He said that is a concern to him, but he believes the loss of tax revenue figure being bandied about ($1.5 million to $1.8 million) is inflated.

By having UMass take over the buildings, Mr. Rushton added, it will be able to choose what life sciences partners it wants to work with going into the future.

He said it provides significant opportunities for UMass and, in turn, will provide significant opportunity for the city and region in terms of the growth of the life sciences industry.

Bob Kievra of the Telegram & Gazette staff contributed to this report.